​Summary:

  • The current account surplus amounted to 1.9 percent of GDP in 2005, more than in 2003 and 2004. 
  • From the perspective of the last three years, the move to a surplus in the current account reflects mainly an improvement in the goods and services account, despite the deterioration in the terms of trade. 
  • The export and import growth rates in 2005 were lower than in 2004, although they continued to rise as a proportion of GDP. The slower rate of increase in world trade reduced the expansion in exports, while imports were affected by the lower level of the real exchange rate, the deterioration in the terms of trade and by the slower pace of goods exports, which contain a large component of imported inputs. 
  • The globalization process is reflected by the range of countries that are Israel’s trading partners. The share of the less affluent countries in Israel’s exports and imports rose during the last five years. The increased share of these countries, in which labor is relatively inexpensive, was particularly notable in labor-intensive industries although their share in the high-tech industries, which are capital-intensive, also rose. 
  • The economy’s financial account amounted to substantial net capital exports of $6.1 billion due to a large $16.9 billion increase in Israeli resident’s investments abroad, which exceeded the $10.8 billion growth in nonresidents’ investments in the Israeli economy. 
  • The growth in Israeli residents’ investments mainly derived from institutional investors’ more rapid diversification of investments abroad. Another major factor was the repayment of foreign-currency credit by the business sector and an increase in its deposits as the interest rate differential between Israel and abroad contracted, a development that led to the banking system transferring sources to abroad. 
  • Developments in the financial account were affected by two main processes: government activity and government decisions that were reflected by a record amount of privatization, and by the impact of the structural reforms in taxation and in the capital market; and worldwide financial trends, primarily the rise in short-term yields, which had the effect of increasing Israeli residents’ investments abroad, the stable level of long-term yields and the growth in capital movements to the emerging economies, which supported additional capital movements to the economy by foreign residents. 


The Balance of Payments - Full File